For many US expats, the years abroad are a rare stretch when their US taxable income is unusually low.
That matters because a Roth conversion is taxed in the year you make it. After that, the money grows and can be withdrawn tax-free. If your US tax rate now is lower than it will be in retirement, converting now can save a lot of tax over your lifetime.
The catch is that a Roth IRA isn't automatically tax-free in every country you might live in. So we model both sides before we recommend anything.
It moves money from a pre-tax account, a Traditional IRA or 401(k), into a Roth IRA. You pay income tax on the amount converted in that year. After that, growth and qualified withdrawals are tax-free, including for the people who inherit it.
If the Foreign Earned Income Exclusion or foreign tax credits bring your US taxable income down, you may pay little US tax on a conversion. The money then grows tax-free for the rest of your life.
No. Unlike Roth contributions, conversions have no income limit. Anyone can convert any amount; what you weigh up is the tax in the year you convert.
It depends on your country and its tax treaty with the US. We look at both sides, working with your local tax adviser where needed.
